Stop Counting Dollars, Start Counting Stops || The Math Social Media Gets Wrong
Most people read R:R Backwards, it is not a fixed number, but rather a dynamic relationship between SL, PT, and WR. All three matter, and combining all three successfully is what creates a system with
Social media has a tendency to assign arbitrary meaning to statistics— rather than how they fit into a bigger system.
It is quite frequent that we see debates as to which stat is “more important” for profitability. The irony is that they are ALL important.
There is a dynamic relationship between them, that —when combined successfully — can build a profitable trading system.
When asked “which one is more important” I always default to the same answer … well, that depends. Market conditions are dynamic, and ** most ** systems will **not** perform the same in different market conditions/regimes.
Trending market conditions behave differently than mean reversion market conditions.
Because of these differences, R:R ratio shifts.
In a directional trending market — 1:1 RR is fine, especially when you’re trading in the direction of the trend.
Typically you re able to risk off your trades sooner and B/E your stops without getting stopped out, because the path of least resistance is in the direction of the trend.
When you zoom out and take a look, the general direction is up.
You will see people say “everyones a good trader in a bull market”. This is because R:R ratio is typically on your side, and we are more likely to see continuations rather than mean reversion in this type of market regime.
You can hit market buy at a breakout, set your stop to B/E and mange to be profitable.
As soon as market conditions change, you will see things shift. Mass frustration— a system that was once profitable, now struggling to see any green days. Most trades ending up in B/E or small loss, which can result in tilt, and revenge trading.
In this article I will cover
Your Bankroll in Stops — The Math — Using a 50k Eval.
Win Rate, Expectancy, and the Stats that Actually Matter.
What RR actually means
Why better RR doesnt always me bigger profits
Why Tighter Risk is Higher Opportunity, Not Low Reward.
Understanding why variance matters, and the statistical case for taking more trades
Your Bankroll In Stops
In March of 2022 one small phrase that @jackgleason said during his Cabo Mastermind will end up sticking with me for the rest of my trading journey.
“Once you start thinking about the market in terms of stops and ATR terms it changes how you view the market”
… but what does that even mean ?
ATR — or Average True Range — is a measure of how much on average something moves over a given period of time
